Standard & Poor’s (S&P) has lowered the rating of reinsurer Munich Reinsurance of Australasia from AA+ to AA-. It’s not a result that will please local MD Rhys Withers, who maintains the giant German reinsurer’s dominance of the local market. But there was nothing he could do about it, with S&P’s following its pattern of doing to the locals what it has done to the overseas parent.

S&P credit analyst Wolfgang Reif says the rating actions follows Munich Re’s disappointing preliminary 2002 earnings announcement late last week, which came on top of a similarly unhappy result last year.

S&P says it doubts Munich Re’s ability to reach its predicted combined ratio of 104%, and suggests the company will take longer than expected to reach a “very strong” level. “The negative outlook reflects the magnitude of challenges that Munich Re faces in order to restore operating performance, improve risk-based capitalisation and alleviate some of the uncertainties arising from its exposure both to the US reinsurance market and the German banking sector,” Mr Reif said.

S&P expects to see strong progress in the group’s targets to achieve 15% return on capital and a combined ratio of about 100% for non-life reinsurance this year.

The ratings agency says it will “closely monitor” Munich Re and its associated businesses throughout the year. Failure to achieve an improvement in profitability may result in a further lowering of ratings.